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Tuesday, February 24, 2015

Why Marina Biotech Deserves a Chance

Oligonucleotide Therapeutics is hot. Outside of immune-oncology which is breaking new ground in cancer, Oligonucleotide Therapeutics is where the real innovation in drug development happens today. In fact,
Oligonucleotide Therapeutics already has become the third major drug discovery
engine and I posit that at the development stage it has already surpassed monoclonal antibodies.

This is also reflected by the valuations of the two best
known proponents in the field, Alnylam and ISIS Pharmaceuticals which are both
worth around $8 billion, a valuation that given its purchasing power that comes
along with it positions them to become major pharmaceutical companies.

It is then long after the behemoths and mid-tier companies like Arrowhead Research and Regulus
Therapeutics which struggle for similar recognition with market caps in the 0.5
to 1 billion dollar range, that Marina
Biotech comes in with an anemic, fully diluted market cap of ~30M.

Vicious circle

A 300x valuation difference to the leaders will put off most
investors from conducting more in-depth research. Surely, a $30M valuation shows that its technology does not work.

This detrimental circular logic extends into business
development where Marina Biotech has essentially given away valuable pieces of its
technology stable for pennies. Licenses
to CRN technology to Novartis for a mere $1M or UNA technology to Arcturus for
a few hundred thousand dollars are sad examples of this.

Of course, at the time the deal were done, Marina Biotech
was in dire straits financially and this was exploited in cold blood by its
partners.

OK, that’s business, nothing personal, and good on Novartis and Arcturus for
their bargains.

Overall, Marina Biotech is probably one of the two most
prolific deal makers in the industry along with ISIS Pharmaceuticals,
reflecting its broad assets in Oligonucleotide Therapeutics.

UNA-CRN Antisense Oligos, it’s as simple as that

This, however, is also a distraction for
management and I am afraid that the CEO, Michael French, keeps looking under
the wrong lamp posts for capital.

In his opinion, Marina Biotech should be the one-shot shop
for Big Pharma looking for solutions against certain disease targets where the
best mechanism of action is not apparent.

Myotonic dystrophy type I, a muscle wasting disease caused
by a toxic nuclear RNA, is probably a good example of this, and this is also
Marina’s lead development project if we ignore for a moment its legacy program
in familial adenomatous polyposis (FAP) now in phase I clinical development.

I, however, struggle to come up with many more examples of
this, and if I were a Big Pharma, I would just evaluate the
different strategies in-house and, if necessary, then gain access to that one
most promising mechanism of action.

This blogger, on the other hand, believes that the public
markets should be Mr French’s audience.
Times have changed and the public markets have become a much
more attractive source of capital for supporting platform companies like Marina
Biotech. Big Pharma, on the other, likes to talk about innovation, but ends up acquiring only
specific development candidates close to the finish line. And if it engages in innovation, it usually fails as a result of their organizational rigidity and leaders better suited to run fast-food companies than technology companies.

Imagine how the simple message that Marina Biotech has a chemistry strategy that can do what ISIS
Pharmaceuticals has achieved would resonate with investors?

I am referring here to the potential of combining UNA with
CRN (similar to 2.5 cET by ISIS Pharm or LNA by Santaris/Roche) chemistry which
just as proposed for usiRNAi triggers
could evade some fundamental IP in the field by virtue of UNAs not
being your typical modified base, an idea that has gained wide support in RNAi
Therapeutics (à Tekmira, Arrowhead
Research, Arcturus).

It should also be noted that only Marina Biotech has the ability to combine both UNAs and CRNs. Despite their licenses, neither Arcturus nor Novartis can do that.

What I also like about the UNA-CRN antisense focus is that
such a simple molecule is ideal for a small company like Marina Biotech which
does not have much research to speak of. The antisense concept is so simple that even a blogger would be
able to translate it into the clinic from the comfort of his home.

Marina Biotech, of course, is no ISIS Pharmaceuticals, and I
should state that my ‘never-touch portfolio’ which I established last summer
almost exclusively consists of ISIS Pharmaceuticals which, at the time,
accounted for more than half of my stock holding.

Marina’s Outlook

Depending on risk tolerance (an investment in Marina Biotech
is still a survival play), however, Marina Biotech has its rightful place in
the investment space which explains this blog entry in the first place. If Michael French could only get himself to
commit to a simple CRN-UNA ASO strategy and show some data from its Myotonic
Dystrophy program, Marina’s severe undervaluation relative to peers would
instantly become obvious.

It’s OK, however, to analyze clinical data from its FAP
program as long as it does not cannibalize investments in the ASO platform. It may also be an excuse to enter the GI ASO
space which, following a $700M+ license from Nogra Pharma to Celgene, has come
into high demand among Big Pharma. Although
I do not think GI-ASO is technically a robust opportunity as the liver and CNS,
if Big Pharma likes to part with $$$, why not cater to them?

Following the filing of an S-1 securities registration
statement and in light of Marina’s financial position (cash runway until
mid-2015), it is obvious that Marina Biotech will raise capital in the near
future. It will be telling on what terms
this will be done and who will participate.
While you will read in most biotech investment textbooks not to invest
in those times, remember that in 2013 somewhat similar circumstances set up
Arrowhead Research for a more than 10x return in less than a year.

I appreciate Dirk's insight in this field useful information/updates can definitely be learned from his writing. However, let the reader beware, the vast majority of positive blog entries he writes are pump pieces. It's his blog so he has every right to do this. Isis, referenced in this entry, is the perfect example. He was hypercritical and down on this stock for years until he decided to invest. Literally, overnight it went from an overvalued company who gave away its best assets and a CEO who cannot be trusted to THE most spectacular investment opportunities of a life time. Nothing fundamental had changed about the company except the fact that his money was now invested in it.

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